HOA Rental Caps

Posted on February 27, 2009. Filed under: HOA Rules & Governance, What HOA Boards Need to Know | Tags: , , , , , |

The challenging economy is taking a toll on many homeowners.   Owners who had no intention of renting their homes a year ago, are now looking at renting their homes as a viable alternative to selling their property in a deteriorating market.   As a result, many self-managed homeowners’ associations are considering whether or not their community needs a rental cap.  If your HOA board is struggling with this decision, there are a few questions you should ask yourself. 

Have you made every effort to involve the renters in your community?  Renters should be engaged in the same way that homeowner’s are engaged, with the one obvious exception –  they cannot vote.  What are the real reasons for considering a rental cap?  What toll will a rental cap have on responsible owners in your community  who may have lost a job and can no longer afford their home? 

Sommerville Estates is a community of thirty-two homes.   Sixteen of which are rentals and two more are in the process of being foreclosed upon.  Sommerville is considering a rental cap for some very valid reasons.   Historically most of Sommerville’s covenant violations emanate from the community’s rental properties and the absentee homeowners virtually ignore the fines and processes.  The steps to cure the violations are slower with rentals than other homes.  With half the homes in their community looking shabby, the overall property values are impacted. 

Perhaps more importantly, Sommerville is losing its voting membership.  Most rental owners are “absentee” not attending meetings or engaging in the neighborhood.  Gaining quorums for annual or special membership meetings is next to impossible…making conducting business extremely difficult.   Clearly this also impacts the eligibility of residents to serve on the board of directors too. 

So if your community is at the point where you must consider a rental cap… now what?   Your association board cannot simply pass a rule or resolve to change the policy.  Rental caps  materially change the homeowners’ rights regarding property use.  Your community will need to seek input from all homeowners and will need to garner enough support and votes from the owners to change the declaration.  This will not be an easy feat, but it is possible. You may need to launch a full-scale campaign informing owners of the rationale, needs and benefits of a proposed cap.  You will likely have to grandfather in many existing rentals and clearly explain any policies in regard to exceptions for extreme hardship cases.   You may need to meet with absentee homeowners personally to discuss their concerns and explain the benefits of the cap. 

The jury is still out on what is the “appropriate” percentage for the cap.    Typically, caps seem to fall somewhere between 10 and 30 percent.  However, this is something your community will need to determine for itself.  Lastly, if you are successful in the effort to legally amend your declaration to include a rental cap, don’t forget to file copies of the amended declaration with the county clerk’s office.

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4 Responses to “HOA Rental Caps”

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my association is telling me that a vote to put a cap on the number of rentals in our condominium must have 100% approval from owners of rented units? is this true?

First, let me clarify that this blog site is focused on single family planned residential communities (HOA’s) not COA’s (condo owner associations).

If your condo was established after July 1, 1990 your will need to take a look at RCW 64.34.264 which addresses ammending condo declarations. It appears that our state’s Condominium Act does require a vote of every impacted owner when the amendment to the declaration involves a use restriction. (A rental cap is clearly a use restriction.)

If your condo was established prior to July 1, 1990, you’ll need to review RCW 64.32 which is more vague and seems to imply that your governing documents would dictate the process for changing the declaration.

Either way, I am not an attorney, so you should consult one to get the best answer on this one.

Hello- I am the “Owner who had no intention of renting their homes a year ago, & are now looking at renting their home as a viable alternative to saving my credit and the home values of my neighbors.
My HOA has flat our refused my hardship leasing permit request. We both lost our jobs, my house fell in foreclosure and I was offered a loan modification if I could support the payment. I opened my job search nationwide and was offered a great job on the otherside of the US…

I have asked the HOA to approve a leasing permit so I can accept this job, and modification, save my home and return when I can- Financially sound!
So they deny me, and say that per our bylaws I have to list my house for sell for 6/mo’s below current market value.- And if it doesn’t sell… they will re-review…

My issues is that 6mo’s is too late for me to save my home. I bought it at the peak end of 2007 – and have had nothing but loss in value since that day. I feel that this is a different economy and that is no longer a solution. That would force me into a short sale and ruin my credit forever as well as hurt the value of a community that I love.

I have already put a call into a lawyer… anyone have any thoughts?
Thanks!

From Chris,

I have seen so many situations like yours, it’s not easy but it is the sad reality of todays market. We can only play the cards we are dealt. I have a listing in a similar situation, but a little more fragile. The lender is dear old dad. Imagine telling him to take less than is owed.

Althought you’re situation is bad, it can be dealt with. As for devaluing your community, that’s already been been done, whether you sell short or not, or get forceclosed on. As for your credit, yes it will be damaged, but not nearly as damaging as the alternative, foreclosure. You will recover in a few years and if your not nearing retirement there is plenty of time to make it up. My wife an i got married at 40, had almost nothing and have done OK since.

As for your condo association and getting denied a hardship. You may want to remind them of the alernative, no more HOA dues payments from you. If they say they’ll get it at closing remind them that the lender is in first position and they can plan on getting little if anything. They may change their tone.

What I would do if it were me is, not put a tenant in there, and put it on the market. It will sell much quicker and be easer to show if it is vacant. To you it shouldn’t matter, you aren’t making the payments anyway.

Please let me know if I can be of further service.

Chris Smith
Windermere Real Estate
206-948-0219


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    Whether you are a homeowner or a community board member, a degree of reasonableness will go a long way.

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